Question

Find the present value of an investment in equipment if it is expected to provide annual savings of $43,000 for 10 years and to have a resale value of $57,000 at the end of that period. Assume an interest rate of 8% and that savings are realized at year end. (Round factor values to 5 decimal places, e.g. 1.25125 and final answer to 0 decimal places, e.g. 458,581.)

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Present value of investment in equipment

$

Answer 1

Present value of investment in equipment  = present value of annual cash flows $43000 + present value of resale value $57000

= ($43000 x 6.71008) + ($57000 x 0.46319)

= $288533.44 + $26401.83

= $314935

Where, PVAF(8%, 10) = 6.71008

PVF(8%, 10) = 0.46319